(Closed) Starting gathering info re: buying – credit issues

Bear with me, I don’t have a specific question, it’s kind of a vent, kind of just getting my thoughts out here for any helpful advice.

SO and I have recently discussed getting serious about purchasing a home. We aren’t ready to quite yet (lack of downpayment $ saved) but we are in the very very beginning stages of at least not only thinking about it but actually gathering info and getting to work on exactly what we would need to do in the future.

Well part of that is credit score, and I pulled my Equifax score and it’s so low (614)! I have a very high amount of student loan debt, 120k, (I’m an attorney) and too much credit card debt ($14k) because I ended up having to use credit cards to get me through school as well (I know this is bad, I don’t need lectures on this part – I’ve learned from my mistakes and am paying them off, not using them anymore).The credit report says that I have “very good” payment history and “very good” length of history, but bad amount of debt and not good because I opened recent credit (I had to open a carecredit card in the fall last year due to a vet bill, but it’s been paid off in full since).

SO has no debt (no car payment, no credit cards (paid off) but he had bad credit in the past. He has avoided anything to do with credit reports/credit scores due to this, and I think he’ll be pleasantly surprised once he pulls his (he was going to tonight) because he’s had great payment history in the past couple of years, like I said, no debt and no long-term blemishes like bankruptcy or judgments.

Anyway, together we make about 87k a year (I get a raise in Aug which will bring us almost to 90k) and my debt would be our only debt. We would be looking at a house in the 100k-120k price range (in Buffalo you can get a nice 3BR, 2bath with land for that amount, love the housing market here!)

I guess I don’t have a specific question, but just looking for thoughts or suggestions from Bees who have been in my shoes. It seems so overwhelming. His best friend’s dad is a real estate agent, and he’s going to schedule an appt. with us to meet with a mortgage person at the bank just to get info, go over the process, etc.

Depending on how much of a downpayment we need and what the rules are, we probably would be gifted with about 6,000-8,000 from our parents for a downpayment.

We just don’t know if this is something that will be feasible within the next year, or if it’s going to take us much much longer. We’re both 30, so we don’t want to wait too long, but SO isn’t going to move in with me paying rent because he’s currently at home.

Depending on your SO’s credit score it might not be as big of a hurdle as you think. A good idea would be talking to a lender that you may have a relationship with to see where you stand. They are going to be happy to tell you where you need to be and how to get there, i really encourage you to do so. You may not be as far from your goal as you think 🙂

@mixtapehearts: Thanks! I guess that’s the overwhelming aspect – not knowing. We should have an appointment within the next 2 weeks through his friend’s dad, so I guess we’ll have to see. I just was worried they might think we’re just crazy for even considering this now.

I’d talk to a mortgage broker / lender and see where you ultimately stand. Depending on his credit score, you may be able to qualify for what you’d need now. And if you can’t, the lender could probably recommend things you can do/change to try to help you reach that point.

The biggest thing I can see would be to pay off your credit card debt as aggressivly as you can. If you can get that “bad” debt lower, it should help your ability to get a loan.

When we took out a loan, 685 was a ‘magic’ number that we had to be above in order to qualify for better interest rates and no closing costs. Luckily both of us were, we are both in the 750 range. But I never got the impression that we wouldn’t ahve gotten the loan with lower scores, so you might be okay.

The main thing the bank wanted reassurance of was that we would make our payments. So in addition to pulling our credit, they spoke to our previous landlords and requried rent payment history of over two years with copies of the cashed checks. So if your payment history is good on your credit score that should help you more than anything.

Well, better news – I checked my Transunion one (654) and Experian (668) and SO checked his Equifax (629). I was right, the one he checked so far was actually higher than mine (614).

Anyways, yay, I was really discouraged when I saw 614, but it turned out to be by far the lowest one. On the other 2 credit reports it says I have excellent pay history and excellent length of history, and the only bad thing is the amount of debt (which again, I know because of my massive student loan debt). SO has absolutely no debt.

I actually was pretty anxious about all of this and haven’t gotten good sleep in the past few nights. I know we have work to do in getting those scores up, but the possibility of buying a home may not be such a crazy dream after all! :o)

You should be able to qualify for an FHA loan with a minimum 3.5% down which is allowed to be gifted from family. The only concern would be your debt-to-income ratio. The best thing you can do is speak with a lender and find out if you can qualify and how much your approval would be. Then take that approval number and determine how much YOU can really afford.

I think it’s important to note that a credit score is not an indicator of whether you’re fiscally responsible. It’s an indicator of how good you are at being in debt.

I pay all my bills on time. I don’t have any credit cards. I had three student loans, one of which I paid off last year. I paid off my car, so I don’t have car loan. I haven’t had mortage in six years, because I sold my house and moved into an apartment when I couldn’t afford the mortgage payments. But I still only have a credit score of 601… Why is it so low? Because I don’t have any debt except student loans. The credit bureau recommended that I get a credit card to increase my score! I’m penalized as far as a credit score because I’ve been responsible and have saved up and paid cash for everything rather than going into debt.

I’ll probably never have a good credit score, because Darling Husband and I believe in paying cash. When we buy a new house, we’ll sell this one (which is paid for–no mortage) and then pay cash a new one. At most we’ll mortage $20K and pay that off in five years. We plan on paying cash for our vehicles… DH does have credit cards, and he has an excellent credit score, but he never carries a balance on his cards because he doesn’t believe in paying interest…

Good luck in getting a house!!!! Don’t let the credit score thing get you down. There are ways to get around that!!!

Thanks everyone – SO and I had a talk about our options with my lease (it ends 8/31, I can renew for 3 months or 6 months (with a fee) or do a 1 year with an add’l homebuyer clause that says with 60 days notice and a purchase contract I can get out of lease – of course with a fee as well)), and I told him that we need to talk to the realtor (his best friend’s dad) and the bank ASAP becuase I have to make a decision by the end of this month (they have us renew/not renew 2 months before end of lease). SO is on board so we should have some news either way about whether or not we can get approved at least in the next 2 weeks!

@MsYankee: I am a lender in Canada, so I’m not sure if it’s much different from the States, but I wouldn’t worry about your credit score at all. We primarily use TransUnion and I would only start to question things when the score falls below 600. That being said, we do look at the amount of credit card debt you are carrying. We might ask why there is that much and why you didn’t get a student loan instead of using a high interest rate credit card but we definitely make an effort to be reasonable and understand the various personal decisions that you might have to make.

We also look at past repayment and if you’ve always been on time, that’s a good indicator that you will continue to honour your payments in the future.

And then we also ensure that you qualify for the mortgage payment based on your incomes and make sure that it falls within our guidelines for debt servicing. I did a quick calculation based on the numbers you gave for income and loans and I think you should be within the guidelines to qualify for the $120K purchase price, especially if you have the gifted downpayment. Good luck!

I just met with a mortage broker the other day, and learned about how credit scores affect your mortgages:

– When you both sign the mortgage, they will take the lower of the two middle scores to calculate the rate (so, if your scores are 614, 615, and 616, and FIs scores are 620, 621, and 622, they’d use 615). – The lower the score they use, the higher your interest rate is going to be. 740 is the ideal “gold standard,” below 600 makes things really tricky.

As for credit cards:– It becomes a hit to your credit score when you use more than 50% of your credit line. It’s better to have a$10,000 balance on a $20,000 credit limit card than it is to have a $900 balance on a card wi th a limit of $1,000.

Your best bet is to meet with a broker or lender, have them compare your asset/liabilities and credit scores, and let you know what you can approximately afford.

I’d mostly be concerned with your debt to income ratio. When we were applying for our mortgage, we were told that anything over 45% isn’t good. It might depend on the type of loan you are trying to get though. How much of your monthly income is used to pay debts? That’s how you figure out your ratio.

@abbie017: Thanks! I’ve been trying to pay down my credit cards, but it’s a slow process with my debt-to-income on my own being high and paying rent, utilities, etc. all on my own. That’s why it’s going to be so helpful to move in with SO – our mortgage would only be about $200 more than what I’m currently paying on my own! So it’ll free up more of my income to go toward those credit cards!

@BoiledPNut: For me alone, just guesstimating since I’m at work right now it’s about 39-40%, but when factoring us both in together it goes down to approximately 22-23% since he doesn’t have any debt! That’s not factoring in rent, that’s all of my other bills (car payment, credit cards, student loans…). If we added a $1000 mortgage payment, with our combined incomes the ratio goes to 35%.